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Guest Post: Economic Policy And The Price Of Gold
Originally posted at The World Complex blog,
Then the rumour circulated that at night the Fed Governors neglected their sacrifices and prayers. A great depression seized everyone. One day the President said to the Fed Chief, "When will we celebrate the return of normal unemployment rates? I would like to make a journey and return in time for the feast. How long is it until the day of the feast?" The Fed Chief was embarrassed. It had been several days since she had looked at the moon and the stars. She had learned nothing more about their courses. The Fed Chief said, "Wait one more day and I will tell you." The President said, "Thank you. Tomorrow I will come to see you again."
The Fed Chief gathered the Fed Governors together and asked, "Which of you lately has observed the course of the stars?" None of Fed Governors answered, because they had all stayed to listen to the stories of Fiat-do-lar. The Fed Chief asked again, "Hasn't even one of you observed the course of the stars and the position of the moon?"
-- modified from The Ruin of Kasch
Economics isn't a science. It is a mistake to think it would be so. Science does not have schools. Only philosophies have schools.
The difference between a science and a philosophy is the difference between seeking truth while honestly admitting you don't know it and declaring that truth is something you define.
Ideally science is described by working hypotheses, which are constantly tested, and if falsified, replaced (unless pride is involved or money). In philosophy, you begin with axioms, which are untestable statements that are defined as being true. Each school of economics has its own set of axioms. From axioms, you apply rules of inference (logic) in order to generate new statements, which are also true. These generated statements are called theorems. Thus all theorems are true (within the school of philosophy) but not necessarily applicable to the real world!
In the early days of geology, there were competing schools: the Neptunists and the Plutonists being two that come to mind immediately. The Neptunists believed that all rocks formed in the sea, either as sediments, or by crystallization as salts (this was their central axiom). The Plutonists believed that all rocks formed from magma (as their central axiom). Debates between adherents of the two schools were rowdy, fruitless affairs, because the nature of philosophy is that it cannot be overturned by mere observations.
The distinction between science and philosophy with respect to economics is important because economists have an annoying ability to set policy--policy that affects the quality of your lives. It probably doesn't matter much to you whether some geologists can't decide among themselves whether a particular rock formed in the sea or on a volcano (or even on a volcano in the sea). But it does make a difference if some Fed official acts on her belief that bankrupting the elderly eliminating interest on savings is a cure for unemployment.
Application of economic policy follows the axiomatic approach. Some high priest of an obscure caste
Recently, The World Complex presented the inverse correlation between the unemployment rate in the UK and its "confidence ratio" (dollar value of public debt divided by the dollar value of gold holdings). The idea was that a high ratio could only be supported if bondholders had high confidence that the debt would be properly serviced (forget about repayment). The flip side is that a high ratio could be interpreted as a measure of a country's ruin.
In the article I had suggested that government economists might cheer a decline in the price of gold.
So today, we look at the same relationship for the United States.
Once again we see a strong inverse relationship between confidence ratio and unemployment.
One of the goals set out for the Federal Reserve is to manage the unemployment rate. Looking at this chart, the answer is clear--to reduce unemployment, increase the confidence. Confidence (as defined above) can be increased in three ways: 1) raise debt, 2) sell gold, 3) lower the gold price.
Of course we all know that correlation does not imply causation. But it doesn't have to in order to impact on Fed policy. That's the beauty of politics--reality and truth don't really matter when there are elections to be won.
There was a comment that perhaps I have too much time on my hands. I'm not sure if the intent was to say that only someone with a lot of time on his hands would notice this relationship. The economists at the Fed have far more PhD's and time on their hands than does this corner of webspace. So I'm sure they have already seen this.
So the question becomes--even if no causation can be established, can it be used to set policy? And what policies will be followed?
Raising debt is the old standby--but as we see in the clarified chart below, it doesn't seem to be working anymore.
Since the 2001 peak (on September 10, perhaps?), the increasing debt has been more than compensated by the rising price of gold. Don't be fooled into thinking the US is sinking into solvency--it is creating debt faster than any time in history. But the price of gold has been rising faster still (although we shall see about 2013).
It appears that policy #2, the sale of gold, is politically untenable. Officially at least. Selling gold is for lesser countries.
So that leaves option #3 -- hope the price of gold falls.
Perhaps they do more than hope.
. . . at first the story of Fiat-do-lar was like hashish when it makes wakefulness happy. Then the story was like hashish when it makes dreams delirious. Toward morning, Fiat-do-lar raised his voice. As the Nile rises in the hearts of men, so his words swelled. To some, his words brought serenity; to others, they were as terrifying as the appearance of Azrael, the angel of death. Happiness filled the spirits of some, horror the hearts of others. The closer morning came, the mightier that voice grew and the more it resounded within the people. The hearts of men rose up against one another like clouds in the sky on a stormy night. Flashes of wrath met thunderbolts of fury. When the sun rose, the tale of Fiat-do-lar reached its end. Ineffable wonder filled the confused minds of the people. For when the living looked around, their gaze fell upon the Fed Chief and Governors. They were stretched out on the ground, dead.
-- modified from The Ruin of Kasch
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OK so help me out here, moar debt solves what gold problem?
DaddyO
Moar mental masterbation from unemployed MBAs...
Confidence can be misplaced as it was in the 1990s whent Clinton, Rubin, Summers, the bullion banks, et al rigged the gold price and the Fed ran loose monetary policy creating a bubble economy.
Real confidence arises from sound money and a sound economy. It can not be created by selling down gold or creating more debt.
Ah, the simplicity of your statement is breathtaking...
DaddyO
Thanks DDO
I do have to concede though that yours are even simpler than mine.
Now who would down arrow an honest compliment?
Seriously, I meant it with all due respect for its simplicity.
Just go look at the FED's balance sheet sometime and then look at your phyzz or other tangibles and tell me which one gleams, simple right?
DaddyO
On the above article, perhaps we can say that the article is promoting confidence derivatives much like the market price of gold is steered with gold derivatives.
They aren't the same thing as the asset itself.
Jerks will Down Arrow it.
They lack the understanding that Genius is simplicity. What is most elegant is that which is most simple.
F = ma
E = mc2
It is not much more simple or elegant as that. (I Up Arrowed you.)
Arrogant politicians, policy makers and academics in their hubris must cling to the idea that within the realm of calculus and set theory, perfect prediction and control is possible. They are enabled by the moneymen who take advantage of this vanity for their selfish purposes.
The problem is that the moneymen do not care if the system goes bust so they will press their advantages to the breaking point with all of their toady politicians, policy makers and academics strumming their tune until the music is interrupted by an unintended perturbation.
Then the moneymen will be right back at work sponsoring the efforts of whoever will further their agenda because they have the money for it
for keynesians, "inflation expectations"="paper gold price"
I fully agree with you.
This underemployed publishing MBA is
wrong, wrong and wrong.
"The difference between a science and a philosophy is the difference between seeking truth while honestly admitting you don't know it and declaring that truth is something you define."
He shot himself in the knee there because I would state
the exact opposite is true : scientists claim exclusive rights to the truth, deviant views are non-scientific.
Philosophers search for the truth and honestly admit they will never get anywhere close but try to define the path
towards better understanding.
Third wrong is trying to mingle the dismal science in between as if disproving the very wrong presumptions of
a non-science could be used against philosophy.
Wrong, wrong and wrong.
This is the most insulting thing anyone has ever said to me on Fight Club. I am not an MBA!!!
Implying any price in this "market" would require/suggest that there is price discover in the "market". There is not, so stop it already.
Make economists and the ones setting policy that the masses have to live under live on the AVERAGE American salary. Let's see how THEY like playing by their OWN rules.
Then just HANG THEM. That makes moar sense.
Economics is a creature of the banks (think: Creature From the Black Lagoon).
"So that leaves option #3 -- hope the price of gold falls"
The fucking problem is they (economists) want us to save in a continually depreciating currency (or, not save at all).
Save in gold, transact in currency.
Economics is observation of public behavior in exchange relationships.
What the FED does has little to do with economics and more to do with purposeful propaganda and statist agenda. If you lack the intelligence to understand this, you write garbage analysis and offer it up for free distribution.
I believe prediction of future activity is a large part of it as well. At least in the US. Given that, then influencing the outcome or manipulation of the prediction is viewed as another tool in the toolbox.
The price of gold rises as Ison passes Mars. A large coronal hole and a simutaneoud coronal eruption combine and M flares with increased solar wind blow the dollar off course....did I get it right?
Nice try, but the CME coupled with the solar wind would wipe out all electronic life on the planet so only those holding tangible assets would have any wealth.
Methinks this wouldn't be so bad...
DaddyO
Methinks at this point it's how we get back to evolving.
Let's see the money power parasites survive in a world where they actually have to do or know something of true value.
Looking with hope for a Carrington Event? I like the comforts of Modern Life.
How would living in Zonieville be without yer A/C?
If the price of gold is manipulated, then the price of gold don't mean squat.
Many of us have been saying that until people are tired of our voices!
Unless you hold it in your greedy little mit, you don't own it and the price is meaningless.
DaddyO
i think the number of claims on every ounce of gold at the Comex is now well over fifty.
there are gonna be a lot of surprised people who think they own gold.....when the bills come due next month.
December should be epic at the Comex.
Epic.
You are correct Captain Obvious. Gold is a bargain...at any price. Just make sure you take delivery and you do not travel ANYWHERE by boat. There has been a rash of Boating Accidents recently...
You really have to wonder what kinds of pressures are being brought to bear on the countries who would like to get their gold out of "storage" at the Fed.
You really have to wonder.
Someday soon....there will be plenty of flop-houses full of desperate "Soylents" discussing how gold derives it's value.
They will be on the hunt for gold....but they will never notice the priests and religion that propels them.
http://www.youtube.com/watch?v=FEK-Dmv5RHA
We aren't supposed to save. . . just borrow, consume, re-elect. It's easier than actually making shit.
Well, there's a price of gold for those "investing" for the "final" BTFD, when everyone who has gold (finally) get to rule the earth and gets the pick of the females with the largest teeth.
Then there's priceless gold for those who aren't investing.
I do not know about "Large Teeth." Healthy teeth...a full set of teeth...yeah...that is good.
But there are other attributes which will be far more attractive. Snug, tight, and healthy are more to my thinking.
YEAH...I WANT A HAREM. AS for those laws on Polygamy...they need abolishment. If Solomon can have a HAREM...so can I.
Damn...I will have to start collecting MOAR...NEED MOAR...MOAR....MOAR....MOAR.
So now back to reality...Crap!!!
To quote the Author:
I disagree. Corrupt politicians set policy and economists are paid to make the actions look like anything other than thievery.
I agree. A worth correction.
What is this crap? I can demonstrate that Mathematics is developed as from Axioms and Definitions. Since Mathematics is the language of Science, and Mathematics is developed from Axioms and Definitions, THEN SCIENCE IS DEVELOPED FROM AXIOMS AND DEFINITIONS. That is only LOGICAL.
And as for the "Schools" of thought...
In the 1920s there were two Schools of thought in Astrophysics. Curtiss, out of CalTech, believed that Spiral "Nebulae" were Island Universes, whereas, Harlow Shapley, out of Harvard University, believed that the Spiral Nebulae were Nebulae and part of the Milky Way UNIVERSE. (Yes the Harvard School believed that the ENITIRE UNIVERSE is what we call the Milky Way Galaxy, today.)
Edwin Hubble solved that problem when he discovered and resolved Cepheid Variable Stars in M-31, the Andromeda Galaxy, with the 100" Telescope on Mount Wilson, and demonstrating that M-31 was Hundreds of Millions of Light Years distant.
It was not over. You see Hubble also uncovered that the Universe was expanding, something which Einstein, calling his "biggest blunder", predicted with his Theory of General Relativity but created a Correction Factor so to maintain a Static Universe.
Some were not convinced. Sir Fred Hoyle, out of Cambridge University, held onto the belief that the Universe was "Steady State". Shapley, taking the "correct" side of this debate, was a "Big Bang" proponent.
Of course Penzias and Wilson resolved that issue when they discovered that 3o Kelvin Background Radiation which the Big Bang Theory predicted.
In Physics, currently, there are two schools of thought that have yet to be resolved. They do not agree. Relativity Theory and Quantum Theory are not resolved. There is no Grand Unified Theory, no GUT...yet. Personally I think that both Theories are very descriptive and accurate when measuring the Macrocosm and Microcosm, respectively.
In fact my bet is that both are fatally flawed and it will take a whole new way of understanding, a revolution of thought. There will not ever be a GUT which unifies two fatally flawed Theories. But this is how Science grows and advances.
(I am not bright enough to create the new idea. I am neither a Newrton nor an Einstein. But I am smart enough to be aware that it will happen in that fashion...if we should live so long.)
Until then we are working with, and will continue to work with, two incoherent theories, two separate schools of thought as it has continued to serve us well.
Physicists, scientists, are not called Doctors of PHILOSOPHY (Ph.D.) by accident.
The author of the original article is ILLITERATE and Scientifically CHALLENGED.
To him I write...GET OUT OF MY FIELD. You are so outclassed.
What about math savants? I mean those few odd people who can just "see" the correct answers to large mathematical problems? I think there is more to math than we know just now.
I am pretty sure I am not as smart as you. Despite that, how can you say science is derived from math? There are physicists that take mathematical derivations from reasonably accurate models and then explore if the mathmatical derivations provide physical insight, but there are also plenty of physicists happy to use math just so long as it seems to describe the phenomenon they study and ignore mathmatical derivations that yield nothing immediate. And then there are physics that have been described really, really well by pure math. If we are saying that math being the language of physics means that limitations in mathematical understanding limit to some degree our discourse about physics, then I can get that.
I guess my point is, "What is your point?" The guy made a few charts and then said, "If by some chance there is a relationship here, then what does it mean?" Doesn't make much sense for someone who reads this blog to have such a curiosity-crushing attitude...
READING THE ARTICLE... I will BOLD and Italicize HIS STATEMENTS.
The article stated,
"Economics isn't a science. It is a mistake to think it would be so. Science does not have schools."
Sorry. Science has "schools of thought"
"Only philosophies have schools."
Sorry. Science is a Philosophy. This supports my position.
"The difference between a science and a philosophy is the difference between seeking truth while honestly admitting you don't know it and declaring that truth is something you define."
Sorry. Science IS a set of DEFINITIONS using Mathematics as the language.
"Ideally science is described by working hypotheses, which are constantly tested, and if falsified, replaced (unless pride is involved or money)"
First...If pride or money is involved then it is far from IDEAL. That concept does not belong after the word, "Ideally".
Next...Science is an rigorous study of the Universe which QUANTIFIES qualities about the empirical Universe. A Scientist will follow a Methodology. He makes observations and collects data. He then formulates a Hypothesis about the data. If the Numerical data to not fit the model then he discards the model or modifies it. This is a predictive model of the phenomena which is being studied.. He then makes predictions based upon that model. If the predictions are invalidated by numerical data he will discard the model.
If the Scientist's experiments are repeatable and there is enough evidence so that his peers accept the hypothesis it is then called a Theory. One false data set will invalidate the entire Theory. The Theory must either be modified to inclue the outlier data set or discarded.
"In philosophy, you begin with axioms, which are untestable statements that are defined as being true."
In Mathematics you begin with axioms, which are untestable statments that are defined to be true. Hmmm...
For example Parallel lines in Euclidian Geometry do not cross. Can you prove that? I cannot.
I can give too many other examples. If ab = 0 then a = 0, or b = 0 That is by Definition.
Does that mean that Mathematics is a PHILOSOPHY???
"Each school of economics has its own set of axioms. From axioms, you apply rules of inference (logic) in order to generate new statements, which are also true."
As I demonstrated with my previous post there are Schools of Thought in Astrophysics and Modern Physics...
"These generated statements are called theorems. Thus all theorems are true (within the school of philosophy) but not necessarily applicable to the real world!"
Of course that is the case. Thus the Theory needs to be discarded as I will do as a Physicist when a Theory does not operate according to the Observable Universe. But that does not mean the Non Sequitur that Economics is not a Science anymore than Physics not being a Science.
He is in the wrong ballpark.
Get a clue. Welcome to Fight Club. This is a no Bullshit zone and we will tell people that they are full of shit when they are.
Hello all,
First comment... I am new the study of markets, economics, etc. Assuming for a moment that the 2 curves in the 1st graph have a relationship between them and is not just a statistical burp, what is the meaning of those 3 points where the curves meet or almost meet?
Seriously Tyler, my comments are better than this post you put up? NOT even sure what the point of this one was, but in todays economics we have two schools:
1. Central Banks and Private Banks and the top 1%
2. EVERYONE ELSE
While number 1 gets to see the nominal values of their portfolio rise and the status quo of buying more things rise
number 2 gets hosed and is forced to accept the scraps that full off of #1s table.
Thats it. the more and more they print the more and more they are going to short sale gold, until China, Russia or someone else takes all the physical and no longer loans it to the banking thieves, then and only then will the Central banks and private banks be dismantled. Banks no longer serve a purpose in todays economic climate, the internet eliminates the need for them, that is why they don't even bother lending. When the people finally wake up and realize that they are no longer needed then maybe this charade will end, until then expect more QE, expect gold to always underperform equities and for GODsakes buy some Bitcoins, at least you have a shot at doubling your money, with GOLD the battle is lost until China accumulates enough to tell the US to go scratch.
This article is rather funny.
All that the jerk who wrote it had to write was...Keynesian Economic Theory is not a Theory but a PLAN.
It is a PLAN to remove the wealth from you to the top.
Actually the plan is working out quite well. I guess that is why that there may be some confusion.
It needed to be labeled STEALING. That would have been an accurate name for it.
price represented in a quantity
of a quality which defies quantification,
the miracle of life.
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check this before it is gone.
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Positive Mind
Wednesday October 23 1:00pm
http://archive.wbai.org/#ankor28
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stick it out through the cross
program thing, both good but intended
link begins at about 9 minutes.
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price? priced in what representative
alternate quality instrument?
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